Acin: Unknown unknowns

Set up in 2017 by founder and chief executive officer Paul Ford (pictured), Acin launched as a network a year later. To date, Acin has 15 investment banks on its network, including Credit Suisse, Standard Chartered and Societe Generale

Acin founder and chief executive officer Paul Ford discusses the rise of operational risk and how data and knowledge sharing can help to mitigate and control it

About Acin

Set up in 2017 by founder and chief executive officer Paul Ford, Acin launched as a network a year later. To date, Acin has 15 investment banks on its network, including Credit Suisse, Standard Chartered and Societe Generale. Its focus is on investment banking and markets business, such as algorithmic trading, cash equities, commodities and fixed income. Initially focused on trading desks, Acin now also covers all of the support functions, globally. The regtech plans to extend its network to asset management, as well retail and corporate banking, and other financial specialisms.

FinTech Intel: Where is Acin’s focus as an emerging regtech?

Paul Ford: Acin is a data and knowledge-sharing network focused on quantifying, standardising and digitalising operational risk. This is a relatively new discipline, emerging after the global financial crisis of the previous decade as one to watch more closely at global systemically important banks (GSIBs) and other financial services firms.

Operational risk is best understood as a discipline when compared to market and credit risk, which are already well covered by rating agencies and market intelligence firms. There is no standardisation or digitalisation in operational risk, so it has very much been done on an individual basis, to the best of the ability of the financial services institution in question. These risks are measured and controlled internally, rarely the same way twice, and invariably by consultants that might have worked on similar projects for different clients. But none of this work is connected, and information and data aren’t shared in a systematic and structured way. This is where the Acin network comes in.

FinTech Intel: What are the strengths of the data available through your network over the skills and expertise of the consultancies that traditionally do this work?

Paul Ford: When a consultant is brought into a financial services firm to consider operational risks, it’s usually to focus on a particular business, such as FX, or a process, such as financial crime. They are then tasked with attempting to identify all of the things that can go wrong and then work out how to address them. There are lots of smart experts doing that work, but it’s all reliant on a person’s judgment, which may miss things. Because that’s the nature of it—it’s an artisan process.

In contrast, we are data experts. We aggregate all of that data, risk and mitigating controls, and when a new member arrives, we compare them to their peer group and find out why they haven’t identified a particular risk—have they just failed to see it, or doesn’t it affect them? The answer is usually a mix of both, and tends to be the case with controls.

We see an average of about 30% gaps in risk and control libraries, but it’s always a different 30% because it depends on when the firms last focused on it and what the internal system is like, because it tends not to be maintained. I think of it as anti-virus software. When you first download the software, it scans your computer and identifies threats. The Acin platform is the same, but we constantly monitor the situation rather than provide a one-off service. When regulations change or a member experiences a new issue, we’re able to quickly disseminate that among the subscribers to the network. As a member, you’re suddenly able to demonstrate your awareness and risk controls to internal senior management and externally to the stock market and regulators.

FinTech Intel: Is the rise in the importance of operational risk due to greater regulatory oversight or can banks gain a competitive advantage from better understanding and control?

Paul Ford: We’re aiming to connect financial services firms around operational risk and make the whole business safer. When one bank is unaware of a particular issue, another will understand and be managing it, so our platform isn’t about granting a competitive advantage. It’s a network in which every member benefits from being in as much control as possible, in part because of regulators. If an issue at a single financial services firm is identified, a regulator is likely to investigate the others in its sphere, meaning it pays to be on the same page where operational risk is concerned.

To achieve this, we’re creating a set of common protocols and standards, much like those that already exist in market and credit risk, which have developed over time. These allow the network to form, data and insight to be shared, and members to be able focus on real risk management, rather than having to react all of the time.

FinTech Intel: What do you hope this will ultimately achieve for the members of your network?

Paul Ford: By creating the foundation—which is a common language, a set of protocols and the data-driven approach—we can develop a fully quantified means of measuring operational risk, without relying on an underlying human judgment. This will allow operational risk to take its place next to market and credit risk as a proper quantitative results-based science.

Consider the amount of capital that banks are holding against operational risk today. Between them, the top 30 GSIBs hold $411 billion of equity capital. That number was zero 10 years ago. J.P. Morgan alone is holding $40 billion. And there are few tools for managing that. What we want to do is bring operational risk up to the same level as market and credit risk, so it is something that banks can actively measure. Operational risk is impossible to avoid and so handling it becomes a trade-off between efficiency and control. By having the right measures in place, banks will be able to measure operational risk quantitatively and, in time, the discussion between regulators and participants will become one of real-time understanding of risk versus capital, rather than on past losses alone. We want operational risk to become forward-thinking like market and credit risk, where the option will be available to take more or less capital and risk.

FinTech Intel: Given the current coronavirus pandemic and the risks it represents, how well placed is Acin help?

Paul Ford: In many ways the pandemic and the consequent market activity has delivered two simultaneous black swans: in parallel with the heightened market volatility, many financial organisations around the world are looking for creative ways to cope with their own challenges of managing decentralised teams as social distancing kicks in. For many, this will stress their risks and controls definitions in the face of new and un-envisaged scenarios—or ‘unknown unknowns’. 

The data and peer-sourced insights that Acin curates and publishes will be key to helping these firms—and the authorities that they answer to—better understand what they must do to respond effectively to the situation as it evolves. We are focused on establishing the consequences of this new situation and ensuring that the emerging risks are understood and documented, and that suitable controls are agreed and implemented to ensure that any lessons learned become embedded.

FinTech Intel: Congratulations on being named as a finalist at the UK FinTech Awards 2020. What would it mean to Acin to win the RegTech Initiative Award?

Paul Ford: We’re delighted to be shortlisted for the RegTech Initiative Award. Our mission is to make the financial system safer so if we were to win, it would be great recognition of that. We also have clients that have taken a risk by joining our network. They’ve put themselves out there in terms of using us and even being shortlisted is a great accolade for them. It makes their internal conversations about their work with us that much more positive.

Image: Acin

Mark Dugdale